India’s defence manufacturing ecosystem is undergoing a major transformation. For decades, India has relied heavily on foreign suppliers for its defence requirements.

As per Deloitte’s Indian Aerospace and Defence Sector (IADS) report, Russia has historically been India’s dominant defence partner, accounting for nearly 72% of the country's arms imports during 2010–2014.

However, its share declined significantly to 36% during 2020–2024, reflecting India's efforts to diversify procurement sources and strengthen domestic capabilities. Despite this shift, India remained the world's second-largest arms importer during 2020–2024, accounting for 8.3% of global arms imports.

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At the same time, domestic manufacturing capabilities have expanded considerably. According to the report, around 65% of defence equipment is now manufactured domestically. This marks a sharp departure from the earlier period when India depended on imports for nearly 65–70% of its defence requirements.

Once dominated by state-owned enterprises and import-dependent procurement, the industry is increasingly being shaped by private companies, start-ups, and Micro, Small and Medium Enterprises (MSMEs).

Government initiatives aimed at promoting indigenous manufacturing have broadened participation across the defence value chain, spanning manufacturing, innovation, procurement, and exports.

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Rising Defence Budget Supports Indigenous Manufacturing

Over the past decade, the government has steadily increased defence spending. Press Information Bureau (PIB) data shows that India's defence budget stood at ₹3.41 lakh crore in FY16–17.

Five years later, it had risen to ₹4.78 lakh crore in FY21–22, marking an increase of about 40.3%. The upward trend continued over the next five years, with the defence budget reaching an all-time high of ₹7.85 lakh crore in FY26–27.

Overall, India's defence budget has increased by approximately 130.2% over the last decade, reflecting the government's sustained focus on modernising the armed forces, enhancing capital expenditure, and promoting indigenous defence manufacturing.

Private Participation Widens the Manufacturing Base

The growing number of licences reflects the entry of more companies into defence manufacturing, as the government pushes for greater self-reliance and domestic production. The ecosystem now comprises 16 Defence Public Sector Undertakings (DPSUs), around 500 licensed defence companies, and nearly 17,000 MSMEs.

The expansion of private participation is helping deepen domestic supply chains, strengthen manufacturing capabilities, and reduce dependence on imported equipment. It is also supporting India's ambitions to increase defence exports by creating a broader network of suppliers and technology partners.

Structural Shift from Buyer to Builder

As per the PIB-released data on 17th June, in FY25–26, India recorded its highest-ever defence production of ₹1.78 lakh crore. From a base of ₹74,054 crore in FY16–17, defence production grew by around 28.3% over the following five years, reaching FY21–22. The pace of expansion accelerated thereafter, with production rising by a further 87.4% between FY21–22 and FY25–26.

Overall, India's defence production has expanded by approximately 140.4% over the last decade. This growth has been accompanied by a remarkable increase in defence exports, which rose from ₹686 crore in FY13–14 to ₹38,424 crore in FY 2025–26—an increase of more than 55 times. The transformation reflects the cumulative impact of sustained policy reforms, increased budgetary support, the Make in India initiative, and a deliberate shift towards indigenous procurement and defence self-reliance.

iDEX Drives Start-up Participation in Defence Manufacturing

The changing nature of India's defence ecosystem is also evident in the growing role of startups and MSMEs. Through programmes such as iDEX (Innovations for Defence Excellence) and ADITI (Acing Development of Innovative Technologies through iDEX), emerging companies are being encouraged to develop indigenous technologies for military applications.

This shift has been supported by broader policy changes within the Ministry of Defence aimed at opening the defence sector to non-traditional players. Reforms in procurement procedures, greater visibility of future defence requirements, and a stronger focus on indigenous innovation have made it easier for start-ups to participate in defence programmes. The Draft Defence Acquisition Procedure (DAP) 2026 further signals a move towards strengthening Indian-owned intellectual property and providing greater clarity on ownership of technologies developed for defence applications—an area that has historically posed challenges for start-ups.

What makes the current phase noteworthy is that innovation is increasingly moving beyond prototype development and into procurement.

Speaking at the National Defence Industries Conclave 2026 in March, Defence Minister Rajnath Singh said that around 676 start-ups, MSMEs, and innovators have joined the iDEX ecosystem since its launch in 2018. The initiative has launched 566 innovation challenges and signed 548 contracts.

More significantly, 58 prototypes have received procurement clearance worth about ₹3,853 crore, while 45 procurement contracts valued at nearly ₹2,326 crore have already been signed. These figures suggest that start-ups and MSMEs are beginning to secure a more formal place within India's defence supply chain rather than serving solely as innovation partners. They also demonstrate how policy reforms are helping bridge the gap between innovation and actual induction into the armed forces.

The defence minister also highlighted the growing contribution of MSMEs to economic growth and innovation, noting that wider adoption of advanced technologies will be important for achieving the vision of a Viksit Bharat.

Defence corridors attract investment and build capacity

While policy initiatives are encouraging participation, dedicated defence industrial corridors are helping create the infrastructure needed to support long-term manufacturing growth.

According to the PIB released on 17th June, the Uttar Pradesh Defence Industrial Corridor has secured investment commitments worth ₹42,057 crore as of April 2026, with ₹4,409 crore already grounded. The corridor is also home to the Defence Technology & Test Centre (DTTC), which aims to strengthen testing, certification and product-development capabilities.

The Tamil Nadu Defence Industrial Corridor has also attracted substantial investor interest, with committed investments reaching ₹32,699 crore and actual investments touching ₹6,446 crore.

Beyond the investment numbers, the corridors are helping create manufacturing clusters where producers, suppliers, testing facilities, and research institutions operate within a connected ecosystem. Such clustering can improve efficiency, reduce development timelines and support the scaling of domestic defence production.

The story of India's defence sector is no longer defined solely by what the country imports, but increasingly by what it designs, manufactures and exports. Rising production, growing exports, expanding start-up participation, and new industrial infrastructure point to the emergence of a more self-reliant defence ecosystem. As these trends deepen, India's defence ambitions are becoming as much an industrial and technological project as a strategic one.